The phrase “bank of mom and dad” is used as witty humour to highlight the fact that our younger generations are beginning to lean on their parents for support when it comes to paying for costly investments such as schooling, a car or even a house. It’s not uncommon for parents to want to support their children and provide a solid foundation on which they can start their lives.
The reality is, the bank of mom and dad might be slowly closing up shop. In our recently published biennial report, Joe Debtor: Marginalized by Debt, we found that as people age, they’re facing more and more debt as a result of a changing economy. Of the 6000+ client files that we studied, 30% were aged 50 and older and their average amount of unsecured debt totaled $68,677.
It used to be common to enter retirement without debt (this includes a mortgage). However, our study found that insolvent seniors aged 60 and older were carrying on average, $172,174 on their mortgage. One explanation for the amount of debt that seniors are carrying is that as they make a shift to a fixed income in retirement, their expenses continue to increase and it becomes necessary to make up the difference using re-financing options and high interest loans such as payday and quick cash installment loans. Consider this: from the files that we studied, almost one in ten insolvent seniors were using payday loans and their average senior payday loan debt totaled $3,693.
So what does this mean for Gen Y?
It means that the bank of mom and dad may be limited on funds, no matter how much parents want to help. So Gen Y are forced to take on more debt themselves, earlier than their parents ever did. Job markets call for more education, forcing people to be in school longer with ever-increasing tuition costs. It’s inevitable that Gen-Y will continue to take on more student debt that they may not be able to repay. In fact, our 2015 study found that student debtors are carrying $13,818 in student loans at the time of filing insolvency; up from $13,242 in our 2013 report.
Moreover, where younger generations might look to their parents for help with the down payment on a house, we’re starting to see a shift in the willingness or ability for parents to hand over the cash; pushing those looking to purchase a home to use personal loans to make it happen – extending the cycle of debt even further. An unstable job market and the reality that Gen-Y will make less money upon entry into their career (or may not end up in their chosen field) only exacerbates their financial issues.
My advice for Gen-Y? Don’t take on more debt than you can handle. If your income and current debt levels do not support buying a house and all of the expenses that go with it, it’s not financially smart to take on that debt. Although it might be difficult to wait until it is the right time, you’ll have saved up the money to make your financial goals happen and be less dependent on your parents for money that they may not have.
What does this mean for seniors?
More and more our younger population are going to their parents for help, but unfortunately, many older Canadians are still trying to pay off their own debt. The sad reality is that for those with debt who try to help their children, it only makes their own problems worse; resulting in the need to file a bankruptcy or consumer proposal to deal with the debt.
My advice for parents? Think twice before supporting your adult children financially especially if you are taking on more debt to do so. More importantly, deal with your own debt issues first. If you’ve ever flown, you’ll know that airlines instruct you to put on your air mask before helping anyone else (even your children). The same goes for your finances. Although your intentions are good, by taking on more debt to help your children, you’re solving one problem, but making another far worse. Seek help from a professional to discuss your options for dealing with your debt and make a plan for the future to help your children with expenses, if that is your overall financial goal.